Wednesday, August 5, 2020

The ECB has to think about its independence

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There has been a lot of discussion about the role of the ECB since the decision of the Federal Constitutional Court.
Picture: dpa

The European Central Bank must be independent. But by whom? The question of what the future mandate should look like needs a new answer. Guest contribution by an economic historian.

Dhe ruling by the Federal Constitutional Court on the European Central Bank (ECB) PSPP bond purchase program was a major encroachment on European law and European politics. Even if German politics does its best to defuse the judgment, one has to fear that it will have explosive consequences for the European legal order. And the judgment should not only be read in the narrower legal or European sense. It questions the institutional embedding of one of the most important economic policy makers in the world.

The constitutional judges refer to the supposedly clear division of tasks between monetary, economic and financial policy. The court made this distinction an unshakable principle, serving as an antidote to the fundamental uncertainty that resulted from a – largely underestimated – upheaval in world history: the transition to the Fiat monetary regime without gold backing in August 1971. As Richard Nixon, the dollar decoupled from gold, for the first time since the advent of money thousands of years ago, the global monetary system was detached from any physical standard.

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